The European
Commission’s competition decisions in the area of sport, which set out broad
principles regarding the interface between sports-related activities and EU
competition law, are widely publicized. As a result of the decentralization of
EU competition law enforcement, however, enforcement activity has largely
shifted to the national level. Since 2004, national competition authorities
(NCAs) and national courts are empowered to fully apply the EU competition
rules on anti-competitive agreements (Article 101 TFEU) and abuse of a dominant
position (Article 102 TFEU).
Even though
NCAs and national courts have addressed a series of interesting competition
cases (notably dealing with the regulatory aspects of sport) during the last
ten years, the academic literature has largely overlooked these developments.
This is unfortunate since all stakeholders (sports organisations, clubs,
practitioners, etc.) increasingly need to learn from pressing issues arising in
national cases and enforcement decisions. In a series of blog posts we will
explore these unknown territories of the application of EU competition law to
sport.
In this second installment of this blog series, we discuss a recent
judgment of the regional court (Landgericht) of Dortmund finding that the
International Handball Federation (IHF)’s mandatory release system of players
for matches of national teams without compensation infringes EU and German
competition law.[1]
Background
In 2009, the Spanish Handball League (ASOBAL) and Group Club Handball
(the predecessor of the Forum Club Handball (FCH); an association representing the interest of the top European
handball clubs) launched a complaint with the European Commission alleging that
the rules of the IHF and EHF on the mandatory release of players were in breach
of Articles 101 and 102 TFEU.[2]
The Commission opened a preliminary investigation. This prompted the EHF to
seek an amicable
solution with the complainants.
In May 2010, the EHF signed a Memorandum of Understanding with FCH,
covering issues such as the terms of compensation for the release of players
and the representation of clubs and other stakeholders in the bodies of the
EHF:
The EHF agreed to pay compensation to the clubs for the release of their
players to the national team. Starting from the 2010 European Championship, the
EHF paid a fee of 270 EUR per player per match via the national federations to
the clubs (amounting to a total compensation of 400.000 EUR, i.e. 10 percent of
the profits of the 2010 European Championship).[3]
The EHF agreed on the principle that “each day a player spends with
the national team/selection his salary should be insured by the National
Federation, EHF or IHF in case of injury in favour of the clubs”.[4]
The EHF took an important step towards more inclusive governance by creating
the Professional Handball Board, a strategic platform for various stakeholders
(leagues, clubs, national federations, and players). It plays an advisory role
through the submission of reports and analyses to the EHF Executive Committee and
contributes to the decision-making process through its chairperson (who is a
full member of the Executive Committee).
Since many of the complainants’ demands were met, ASBOL and FCH withdrew their competition law complaint. Subsequently, the European Commission closed its preliminary
investigation in June 2010.
The EU handball “case” is a good illustration of the remedial potential
of EU competition law to strengthen good governance in sport. The mere threat
of a formal investigation by the European Commission proved sufficient for the
EHF to change its rules for the release of players and to establish a channel for
clubs and other stakeholders to participate in its decision-making process.
In 2014, the EHF and FCH renewed the 2010 Memorandum
of Understanding (MoU) until June 2018. The modified MoU, which has been the
subject of negotiations for more than one year, foresees increased fees
for the release of players to the European Championships.
Strengthened by the satisfactory outcome reached with the EHF in 2010,
the FCH made attempts to come to a similar arrangement with the IHF. Following
negotiations during the course of 2010 and 2011, the IHF for the first time in
history paid compensation for the release of players to the World Championship
and signed insurance for player salaries for injured players. The IHF Council also
proposed to integrate the clubs as stakeholders in its bylaws. The clubs,
however, did not accept with the terms and conditions of the proposal and no
agreement was reached. The clubs were also dissatisfied with the amount of the
compensation paid by the IHF: qualification matches were not compensated and
the fee only amounted in average to 10-20 percent of the monthly salary paid by
the European top clubs. The prospects of reaching an agreement between the IHF
and the CFH dimmed. In March 2012, the IHF made clear that it was no longer
prepared to discuss a MoU with the FCH. This prompted 30 German clubs to sue
the IHF and the German Handball Federation (DHB) before the regional court of
Dortmund in April 2013.
The 2014 Dortmund
judgment
The IHF Player Eligibility Code provides that a club having a foreign player under contract is obliged
to “release such player to his National Federation if he is called up to
take part in activities of that federation's national team” (Article 7.1.2).
The activities include the Olympic Games, World Championships, and continental
championships as well as the qualification matches and tournaments for these
events. According to Article 7.2 of the Code, a club releasing a national
player “shall not have any claim to compensation”. Furthermore, the club
must take out insurance coverage for the player in the event of personal injury
and resulting consequences for the period for which the player has been called
to his federation’s activities (Article 7.3.2). A club failing to release a
player that is able to play will be penalized in accordance with the IHF Regulations Concerning Penalties and Fines and the disciplinary regulations of the Continental Confederation
concerned (Article 7.4.4).
The German handball clubs, supported by the FCH, argued that the rules
concerning the mandatory release of players to the national team and their
application by the IHF and DHB constitute an abuse of a dominant position
prohibited by Article 102 TFEU and the equivalent German competition law
provision (§ 19 Gesetz gegen Wettbewerbsbeschränkungen, GWB).
The regional court of Dortmund first addressed a number of procedural
issues. Considering that the DHB is bound by the rules of the IHF, the court
decided to join the proceedings against the IHF and DHB. Moreover, the court
did not defer to the jurisdictional exclusivity claimed by the defendants. It
stressed that the internal disciplinary bodies or even the Court of Arbitration
could not be considered independent and impartial for the purpose of reviewing
the compatibility of the mandatory player release system with competition law.[5]
According to the court, neither the IHF nor the DHB regulations could prevent
the clubs from seeking direct recourse to an ordinary civil court. Lastly, the court
found German law to be applicable. Even though Article 7 of the IHF Player
Eligibility Code affects handball clubs worldwide, its obligations also
substantially affect the German market in which the claimants operate.[6]
The intimate connection between the claims against the IHF and the DHB further
supported the conclusion that the regional court of Dortmund was the
appropriate legal venue for hearing the case.
On substance, the court found that the IHF is a monopolist on the
market for the organisation of international handball events, including the
World Championships and the Olympic Games (i.e. events in which national teams
compete), and on a number of other separate, but closely related, commercial
markets (e.g. sponsorship). Also on the markets for the organisation of
European and national handball competitions, the IHF holds a dominant position (solely
and together with the EHF and the national federations).[7]
Turning to the contested rule of the IHF Player Eligibility Code
(Article 7), the court stressed that the obligation for clubs to release
players for matches of national teams without compensation is incompatible with
the civil code rule of good faith in contractual performance.[8]
In any normal business, it would be unthinkable that an undertaking would
provide for free a resource, its employees, to a competitor seeking to make
profits from that resource.[9]
At the same time, the court found that this obligation constitutes an
exploitative abuse of a dominant position prohibited by § 19 GWB and
Article 102 TFEU. When recruiting top foreign-raised players, clubs must take
into account the costs of paying their players while they are absent and, what
is more, the costs incurred if those players would get injured during an
international match. As such, uncompensated player release restricts the clubs’
contractual freedom and distorts competition between the clubs.
Although Article 102 TFEU does not contain an exemption clause similar
to Article 101(3) TFEU, an undertaking may escape an abuse finding by
demonstrating an objective justification or efficiency defense for its conduct.
The court, however, brushed aside the arguments put forward by the IHF and DHB to
this end.
First, the defendants contended that without the player release system,
clubs would not be willing to release their players to national teams. The
release rules would also prevent clubs from trying to weaken foreign national
teams in favor of their own national team.[10]
The court stressed, however, that the mandatory release of players for national
teams in itself is not being contested. It also pointed to the fact that the
IHF, notwithstanding Article 7.2 of the Player Eligibility Code, decided to pay
compensation for the release of players to the 2011 and 2013 World
Championships. This indicates that in principle a compensation would not
adversely affect the sporting or other interests of the IHF. In addition, the
court made numerous references to the MoU reached between the EHF and the FCH
as well as to the MoU between FIFA and the European Club Association (ECA)
(i.e. the deal as a result of which the Oulmers litigation was
terminated, see below). These examples indeed exemplify that an uncompensated
player release system cannot be considered indispensable.
Second, the defendants argued that participation in international
handball events increases the exposure and thus the value of the players, which
indirectly benefits the clubs.[11]
Also this argument failed to convince the court. If the IHF and DHB would be
able to quantify this advantage, this could be taken into consideration when
determining the compensation. Yet it could not objectively justify the denial of
compensation for the release of players or for their potential injuries.
In light of these observations, the court declared the conditions for
the release of players to foreign national teams, embedded in Article 7.2 and
7.3.2 of the IHF Player Eligibility Code, null and void. Interestingly, the
court also suggested that the IHF would introduce a cap on the number of days an
association would be entitled to call up players for the national team.
A landmark judgment
in the making?
Unsurprisingly, the IHF and the DHB lodged an appeal against the
judgment before the higher regional court (Oberlandesgericht) of Düsseldorf.
It is not unthinkable that eventually the case will trigger a preliminary
reference to the Court of Justice and emerge as the successor of the abandoned Oulmers litigation against the FIFA
player release system.
The regional court of Dortmund did not expressly rely on the Wouters
proportionality test, transposed in Meca-Medina, to assess whether the IHF’s player release system constituted an
abuse of a dominant position. The court’s analysis is, however, largely
consistent with the analysis that the Court of Justice would follow. After
having established that the contested rules emanate from an undertaking that
has a dominant position, the court verified whether there are less restrictive
means to achieve the objectives pursued by the IHF’s mandatory player release
system. It did not call into question the necessity of a mandatory player release
system for the organisation of international handball competitions, but the
court did conclude that the current system – which leaves clubs uncompensated –
could not be objectively justified.
For at least two reasons the Dortmund judgment, while not final yet,
has potential to become an important precedent for many other sports.
First and foremost, it offers the first substantive assessment of the
compatibility of player release rules with EU (and national) competition law. Particularly
in the event of a preliminary reference to the Court of Justice, the case could
serve as a much-needed wake up call to all international sports federations
that currently operate a similar system. Arguably, federations could assert
that the compensation should not cover all the costs incurred by the clubs.
Indirect benefits to the clubs could be discounted. Yet it appears undeniable
that the imposition of the burden on clubs to supply players without allowing
them a fair share of the resulting benefits constitutes an abuse prohibited by
Article 102 TFEU.
Second, even though sports federations usually have practical
monopolies in a given sport, the remedial potential of Article 102 TFEU to
tackle abusive conduct remains underexplored. This case, and even the earlier competition
law complaint lodged against the EHF, reveals that it offers a powerful
instrument to steer sports federations into the direction of better governance.
Eventually the IHF will have to follow the path that others (e.g. EHF, FIFA)
have traveled. After all, the determination of a fair compensation for player
release necessitates a consensual strategy that balances the needs of
stakeholders, in this case the clubs, with the needs of the federation.
We continue to follow this case closely, so stay tuned.
[1] Landgericht Dortmund, Urteil vom 14.05.2014, 8 O 46/13.
[2] Cases COMP/39659 ASOBAL
v handball federations and COMP/39669 Group Club Handball v handball
federations.
[3] Forum Club
Handball, EHF pays compensation to the clubs, 28
February 2010.
[4] Forum Club Handball, Insurance of player salaries in case of injury, 15 June 2010.
[5] Landgericht Dortmund, Urteil vom 14.05.2014, 8 O 46/13,
paras. 104-114.
[6] Idem, para. 118.
[7] Idem, paras. 121-122.
[8] German Civil Code, Section 242 (“An obligor has a duty to perform according
to the requirements of good faith, taking customary practice into
consideration”).
[9] Landgericht Dortmund, Urteil vom 14.05.2014, 8 O 46/13, para.
129.
[10] Idem, para. 130.
[11] Idem, para. 132.